Termination of employment relationship in Spain

What are the circumstances in which an employment relationship in Spain may be terminated?

Under Spanish Labor law, the employment relationship may be terminated by: resignation / termination by the employee, expiration of a definite term contract, objective/economic dismissal initiated by the employer, or an action under disciplinary dismissal.

Termination by resignation and expiration of a definite term are straight forward terms and do not pose complex issues under Spanish Labour Law. However, it must be noted that in the event of a termination due to the ´expiration of a definite term contract´, the employer is liable to make a termination payment equivalent to 12 days´ per year of service.

The two contentious and litigated grounds of termination are objective dismissal and disciplinary dismissal.

What is an objective dismissal?

An objective dismissal is termination based on any of the objective grounds such as, economic, technical, productive or organizational reasons. Case law has determined that the organizational reasons may include, internal reorganization or rearrangements of departments, closure of branches due to changes in demand and the loss of significant contracts, readjustment of companies after a merger, centralization of departments of the company to the detriment of their regional branches, substantial changes in management etc. Further, grounds such as incompetence of the employee or worker´s failure to adapt to the technical modifications at the workplace have also been held to be valid grounds for an objective dismissal.

An employer (company) may carry out an objective dismissal at any time, however, to be considered fair under the Spanish Labor law, there must be strong justification for the termination decision and proper procedure must be followed.

The procedure to carry out an objective dismissal is:

The employer must issue a termination letter, to be delivered to the affected employee, informing them of the termination of the employment relationship, the effective date of termination and setting out the reasons for the objective dismissal;

Simultaneously, the employer must pay, by way of demand cheque or any other method agreed within the employment contract or as per company policy, a fair redundancy compensation to the affected employee. The compensation payment in case of objective fair dismissal is calculated as 20 days´ per year of service with a cap of 12 monthly payments; and

The employer must provide a minimum notice period of 15 days, from the date of issue and delivery of termination letter to the effective date of termination. However, this notice period may be avoided by paying the salary corresponding to the 15-day period.

What is a disciplinary dismissal?

Disciplinary dismissal is the term often used to suggest termination based on misconduct or non-compliance with the employment contract. Courts have found that the following situations may be considered valid grounds for a dismissal under this heading: repeated and unjustified absence or lateness in the workplace, insubordinate conduct or disobedience at the workplace, verbal or physical abuse directed at the employer or any other person employed in the company, breach of contractual duty of good faith and abuse of trust in the discharge of duties, continuous default on the work assigned, habitual drunkenness or drug addiction if it adversely affects performance at work, harassment based on race, or ethnic, origin, religious belief, conviction, disability, age or sexual orientation, and sexual misconduct against the employer or any other person employed in the company. This list of grounds is in no way exhaustive and each case must be assessed on its own facts and merits.

The steps to be taken in case of terminating an employment relation based on the fact of a disciplinary dismissal are:

The employer must issue a termination letter, to be delivered to the affected employee, informing them of the termination of the employment relationship, the effective date of termination and setting out the reasons for the disciplinary dismissal (It is important for the employer to set out the reasons and causes for the dismissal action in detail, as the dismissal letter may be later used in court as evidence);

If the dismissal action based on disciplinary reasons is fair, there is no need for the employer to pay a compensation to the affected employee; and

In case of a disciplinary dismissal, the employer is not under a legal obligation to give prior notice or a notice period before the effective termination date. The action may be immediate.

However, it is worth noting, that a dismissal based on disciplinary reasons must be initiated within a period of 60 days computed from the date the reasons were first observed/discovered, and in any event no later than 6 months from the date of occurrence of the disciplinary misconduct.

What are other important considerations for employers´ prior to initiating a termination action in Spain?

The employers must, prior to initiating a termination action in Spain, consider the following:

Whether the employee has an ordinary labor contract or is a board member or director within the company: in case of the latter, the dismissal action may be governed by mercantile law and in any case the negotiated employment contract It is prudent to mention that under Spanish Labor Law, less protection is afforded to employees with a greater seniority within the company.

Whether there is an existing collective bargaining agreement: any additional legal requirements laid down in the CBA must be complied with for the dismissal action to be considered ´fair´.

Whether the employee has enhanced employee protection under Spanish Labor Law: specially protected employees include employees´ representatives, pregnant women, workers on parental leave, workers with reduced hours due to child care responsibilities, employee who may have previously sued the company, among others. Dismissal actions against such protected employees attracts specific laws; non-compliance with these special rules will render the dismissal void.

What is the legal process once the dismissal/termination letter has been issued?

Once a termination letter has been duly delivered to the affected employee, the employee may, within 20 days of receiving the termination letter, bring a claim against the employer for unfair dismissal or void dismissal.

Under Spanish Labor Law, it is mandatory for the parties to first engage in a conciliation process, and accordingly, the employee will have to file an administrative claim, in most cases, before the Servicios de Mediación, Arbitraje y Conciliación (SMAC). Certain actions are exempt from the mandatory conciliation requirement and may be directly submitted before a competent Court or Tribunal. These include but are not limited to actions that may pertain to social security, geographical mobility, substantial modification of working conditions, constructive dismissal by way of ´objective´ actions, etc.

If the parties are unable to reach a settlement, the employee may submit a judicial claim before the competent Court or Tribunal. The judge will declare a judgment after duly conducting the hearing pursuant to the Civil Code in Spain.

It must be noted that the courts and the Spanish Labor Law as drafted, encourage the parties to reach a settlement by way of mutual negotiation or conciliation. Even after judicial action has been initiated, the parties may reach a settlement agreement at any time before the judgement is issued.

What are the possible legal outcomes in a dismissal hearing?

The Courts, regardless of the grounds of dismissal stated by the employer, may declare the termination to be either fair, unfair or void.

If the dismissal is declared fair, the termination decision is upheld, and no further compensation is payable by the employer.

If the dismissal is declared unfair, the employer may be compelled to either reinstate the employee or be obligated to pay an unfair dismissal compensation to the employee, computed within the 45/33 days´ compensation rule. This compensation is equal to 45 days´ per year of service with a cap of 42 monthly payments up to and including 11 February 2012 and additional 33 days´ per year of service with a cap of 24 monthly payments from 12 February 2012 onwards.

If an objective dismissal action by the employer is declared to be unfair by the Court, the employer may be liable to pay to the employee, the difference between the amount paid when delivering the termination letter and the legal compensation due as per the unfair dismissal compensation.

If the dismissal is considered void, the employer must reinstate the employee. The Court may find that a dismissal action is void if the termination is not sufficiently justified or if the employer is infringing fundamental rights of the affected employee. The employer, in addition to reinstatement, will have to compensate the employee for the loss of salary from the date of effective termination up to the ruling notification.

Lastly, if the dismissal of a workers´ representative is declared unfair by the Court, he/she will have the right to choose between being reinstated or receiving the compensation payment. Additionally, in cases of dismissal of a ´specially protected employee´ under the Spanish Labor law, the Courts may either declare the dismissal to be fair or void; a declaration of unfairness is not legally possible. It is customary for companies seeking to avoid reinstatement of such dismissed workers´ representatives or otherwise protected employees, to reach a settlement agreement at a compensation above than the unfair dismissal compensation threshold.

How can we help you?

Ceca Magán Abogados is one of the 5 best law firms in Labor Law in Spain. Recognized by the most prestigious international directories, such as Legal 500 and Chambers & Partners, we have been selected as the best Labor firm in Spain by Global International Awards in 2017. Our employment, tax, corporate and dispute resolution departments have experienced lawyers who are equipped to help you deal with dismissal and related issues.